FLSA class action strategy seeks to moot cases

Laura Symczyk workedas a registered nurse at a retirement home in Philadelphia for 10 months in 2007. She alleges in a lawsuit she filed in 2009 that Genesis HealthCare Corp., the operator of the nursing home, violated the Fair Labor Standards Act (FLSA) by automatically deducting meal breaks from workers’ paychecks regardless of whether they worked during their meal periods. She sought to represent herself and all similarly situated workers at the nursing home. Symczyk claimed she was entitled to about $7,000 in back pay and liquidated damages.

Before Symczyk formally petitioned for class certification, the defendant made an offer of judgment under Federal Rule of Civil Procedure 68, offering to pay Symczyk $7,500 plus attorneys’ fees and costs as determined by the court. Symczyk’s counsel allowed the offer to expire and proceeded forward to discovery in anticipation of class certification.

But before discovery commenced, Genesis moved to dismiss the case, alleging that the court lacked subject-matter jurisdiction. Genesis’ theory was that because it had offered to give Symczyk everything to which she’d be legally entitled if she won the case, she no longer had a live “case and controversy” as required for federal jurisdiction under Article III of the Constitution. The district court agreed and dismissed the case. On appeal, the 3rd Circuit reversed, finding that the offer did not “fully satisfy” the claims asserted in the case because the interests of the potential class members were not addressed, notwithstanding the fact that a class had not been certified and no other employees had opted into the case.

The Supreme Court granted certiorari and heard arguments in December 2012. The case caught the attention of numerous amici on both sides. Its outcome will have a serious impact on FLSA litigation and potentially class actions more broadly.

“If the Supreme Court finds that a mere offer of settlement can moot a case, it will become nearly impossible for workers to vindicate their rights in a collective manner,” says Nicole Berner, associate general counsel for the Service Employees International Union, who filed an amicus brief in Genesis HealthCare Corp. v. Symczyk.

Whac-A-Mole

Genesis challenges an effective strategy corporations have employed to cut off risky class action litigation of wage claims. In those courts that have approved the tactic Genesis used—offering full payment to the named plaintiff before other workers opt into the case—the litigation stops before a class is certified. Although nothing prevents another worker from filing a similar lawsuit on behalf of the same class, the process is iterative—the defendant could immediately offer to pay off the named party in the new case. Meanwhile, each plaintiff needs to come up with a filing fee to initiate the case and find a lawyer willing to take on the claim, which is unlikely to be certified as a class action.

“It’s a Whac-A-Mole situation,” says Jocelyn Larkin, who filed an amicus brief in Genesis on behalf of California-based Impact Fund, which provides support and funding to litigation concerning civil rights. “The defendants can pick off one plaintiff at a time and ultimately frustrate plaintiffs’ ability to exercise their right to proceed in a class action.”

The 7th, 9th and 11th Circuits have allowed this tactic in FLSA cases, but the 3rd, 5th and 10th Circuits have rejected the strategy, finding that a plaintiff may move to certify a class even after being offered complete relief on his individual claims in order to avoid mootness.

Some courts distinguish between use of this tactic in FLSA cases, which have their own mechanism for class proceedings, and Rule 23 class actions more generally. Other courts extend this logic to all class action litigation. For instance, in the 2011 case Damasco v. Clearwire Corp., the 7th Circuit found that a settlement offer that fully satisfies the named plaintiff’s claim in any class action makes the case moot, so long as the offer is made before a motion for class certification. The 4th and 8th Circuits have reached the same result.

Pick-Off Tactic

According to plaintiffs lawyers, a decision authorizing the tactic of mooting a case by offering settlements to named plaintiffs would frustrate the purpose of the FLSA. Plaintiffs lawyers are reluctant to file cases in which the maximum recovery is small and there’s no potential for aggregating small claims into a large lawsuit.

“A ruling in favor of Genesis would allow defendants to avoid accountability when liability is clearest and the worker is least likely to bring his claim,” says Rex Burch, a partner at Bruckner Burch who authored an amicus brief on behalf of the National Employment Lawyers Association, a plaintiffs bar association. “Defendants could cut off their liability by paying off one low-wage worker, while continuing to shaft dozens or hundreds of other low-wage workers.”

Likewise, plaintiffs attorneys fear that individual workers who may have been underpaid by a few hundred dollars each are unlikely to assert their rights in court on their own.

“Nursing home workers and other low-wage workers are often afraid to bring FLSA lawsuits as individuals,” Berner says. “They legitimately fear retaliation by their employers or the possibility of being blacklisted in the local market by other nursing home employers.”

Curbing Abuses

For its part, the defense bar claims that a decision in favor of Genesis will curb rampant abuse of extremely costly FLSA litigation. The FLSA provides for payment of a successful plaintiff’s attorneys fees plus liquidated damages equal to the amount of back pay owed.

“It’s a constitutional issue,” says James Boudreau, a partner at Greenberg Traurig who represents Genesis. “If the defendant is willing to pay everything the plaintiff is owed, plus, the plaintiff’s attorney shouldn’t be permitted to litigate for the sake of litigating and use a plaintiffless lawsuit to impose inordinate defense costs.”

The parties expect a decision by the end of the Supreme Court term in June.